Govt's plans to shut down AAF raises questions

Zakki P. Hakim, The Jakarta Post, Jakarta

The outgoing government's plans to close down fertilizer manufacturer PT Asean Aceh Fertilizer (AAF) because of a shortage of natural gas has raised questions from an official.

Ministry of Industry and Trade director general of chemicals for agriculture and forestry Benny Wahyudi said on Tuesday the three fertilizer firms in Aceh, and paper company PT Kertas Kraft Aceh, only needed a maximum of 10 percent of the total gas production from the Arun field in the province.

He said the government should work to ensure these companies had uninterrupted gas supplies. Shutting them down would create a negative impression about the government's commitment to encourage investment in the country, he said.

"It is hard enough to get new investment up and running, and now we are killing existing projects," he said.

In a limited Cabinet meeting on Monday, the government made a preliminary decision to close down AAF, which is 60 percent owned by Indonesia. The remaining shares are owned by other ASEAN member countries; Malaysia, Thailand, the Philippines and Singapore.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said the decision was made because existing and future gas production in Aceh would not be enough to cover both export commitments and the needs of other manufacturing firms in the province. AAF, established in 1979, was also an aging company, he said.

However, Dorodjatun said the decision was not yet final, as Indonesia still needed to hear from the other ASEAN shareholders.

AAF president Rauf Purnama could not be reached for comment.

Fertilizer firms in Aceh have been struggling hard to survive because of continuing gas supply problems as reserves from the main Arun field decline, while existing production has been refined into liquefied natural gas (LNG), which is exported to Japan and South Korea.

ExxonMobil Oil Indonesia (EMOI) is the sole natural gas producer in Aceh and its output has largely been dedicated to PT Arun NGL for LNG production. EMOI has seen its gas reserves declining sharply during the past few years.

The decline has affected PT Arun's other business operations, with the firm cutting two of the six trains it operates in Lhokseumawe.

The government has had to import LNG from other LNG producers to meet its commitment to Arun's LNG overseas buyers, while sending some of the natural gas from EMOI to fertilizer firms.

Dorodjatun said the government would maintain the operations of two other fertilizer firms in Aceh; PT Pupuk Iskandar Muda I (PIM-I) and PIM II.

The government was still negotiating with ConocoPhillips to exploit natural gas reserves in the Block A field near Lhokseumawe, he said.

The plan is for ConocoPhillips to start gas production from the field in 2008. But negotiations have been tough as ConocoPhillips has demanded a output share of up to 50 percent, while the government wants a 65-45 split.

AAF reached peak capacity in 1997, producing 695,826 tons of Urea fertilizer. The joint venture targeted ASEAN countries as its main markets with the remaining fertilizer going to China, India, Japan and Taiwan. The company employs about 700 staff.